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Factors Setting the Tone for Lumentum's (LITE) Q2 Earnings

Zacks Equity Research

Lumentum Holdings LITE is scheduled to report second-quarter fiscal 2020 earnings on Feb 4.

The company expects non-GAAP earnings in the range of $1.20-$1.35 per share. The Zacks Consensus Estimate for fiscal second-quarter earnings per share has remained stable over the past 30 days at $1.30 per share. The figure suggests growth of 13% from the prior-year quarter.

Lumentum projects fiscal second-quarter revenues in the range of $445-$460 million.

The consensus mark for revenues is pegged at $453.2 million, indicating an improvement of 21.3% from the year-ago reported figure.

Notably, the company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing the same once, the average positive surprise being 12.64%.
 

Lumentum Holdings Inc. Price and EPS Surprise

Lumentum Holdings Inc. Price and EPS Surprise

Lumentum Holdings Inc. price-eps-surprise | Lumentum Holdings Inc. Quote

Q2 Guidance & Estimates in Detail

For second-quarter fiscal 2020, Lumentum expects Telecom and Datacom revenues to improve sequentially, on higher chip sales to transceiver customers on the back of ongoing telecom transmission trends. Notably, the corresponding figure in the first quarter came in at $248.1 million.

Industrial and Consumer revenues are anticipated to be down sequentially. Demand for 3D sensing is anticipated to decline more than 20%, owing to seasonality, which remains a major concern. Notably, the corresponding figure in the first quarter came in at $168 million.

Meanwhile, revenues from Commercial Lasers are expected to increase on a quarter-over-quarter basis on improving customer inventory levels. Notably, the corresponding figure in the first quarter came in at $33.8 million. The Zacks Consensus Estimate for Commercial Lasers revenues is pegged at $41.2 million for the second quarter.

Factors to Consider

Incremental adoption of Lumentum’s datacom chips is expected to have benefited the fiscal second-quarter top line. Further, continued momentum in demand for the company’s fiber lasers and ROADM is expected to get reflected in the to-be-reported quarter’s performance.

Moreover, growth in demand for transmission products is expected to have benefited the telecom transport front. Continued demand in global network bandwidth requirements and for building infrastructure related to 5G, are key catalysts in this regard.

Notably, the Zacks Consensus Estimate for Optical Communications revenues is pegged at $411 million for the second quarter. Notably, the corresponding figure in the first quarter came in at $416.1 million.

However, increasing expenditure on research and development with an aim to add innovative capabilities to 3D sensing offerings amid competition from Himax HIMX and other peers, is likely to have impacted profitability in the fiscal second quarter.

Key Development in Q2

On Dec 2, 2019, Lumentum inked an agreement to sell select Lithium Niobate based optical component product lines to Advanced Fiber Resources (Zhuhai) Ltd.

The transaction is expected to conclude in third-quarter fiscal 2020.

What Our Model Says

According to the Zacks model, a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Although Lumentum has a Zacks Rank #2, an Earnings ESP of -0.48% makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of stocks that you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Advanced Energy Industries, Inc. AEIS has an Earnings ESP of +10.80% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bruker Corporation BRKR has an Earnings ESP of +0.86% and a Zacks Rank #2.

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